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Protectionism Makes Great Countries Poor Again

Few American presidential elections have drawn as much international interest and concern as the one in 2016. Certainly, who is elected and sits in the White House in Washington, D. C. matters to many people everywhere since America remains a political, economic and military colossus influencing major and minor events around the globe.

Yet, the anxiousness about the possibility and then the reality of the election of Donald Trump as the 45th president of the United States is unique, at least in my lifetime. His blusterous language, his crudeness of verbal expression, his seeming refusal to play by the standard etiquette and rules of the political game during the Republican primaries and then through the presidential campaign leading up to election day in November of last year threw many people off balance, in America and elsewhere, wondering what to expect if Trump were to win.

Then came the shock of his actually winning the election after pollsters reading the public’s preferences and the pundits pontificating on the “impossibility” of America choosing Trump were all proven wrong on the evening of November 8, 2016. The votes were tallied and it became clear that Donald Trump had won the needed votes in the American Electoral College to claim victory, even with Hillary Clinton gaining almost three million more of the popular votes.

Denial and Anger at Trump’s Triumph

It is said that there are several stages of human grief after a great personal loss. Denial is the first, followed by anger that the tragedy had happened. With only a short period of time since the November election and then Donald Trump’s inauguration as president on January 20, 2017, those who cannot accept the electoral outcome are still experiencing some combination of these first two stages.

But the fact is, Donald Trump did win the election and unless some unexpected turn of events were to happen, he will be president of the United States for at least the next four and possibly even the next eight years. So whether many like it or not, it’s best just to skip through to the last stage of the grieving process – acceptance. Donald Trump is in the White House, and is going to be there for a while.

So what does a Trump Administration mean for America and the rest of the world? Well, in fact, there are very few questions on this matter, since Trump has been explicit and straightforward on the general nature and many of the specifics of his worldview, and how that worldview will guide his policy decisions over the coming years. We have already gotten a glimpse into his views in the “executive orders” he has issued so far during his presidency.

Left-Wing Delusions about Donald Trump

Before we come to this, it is perhaps necessary to put aside some delusional fears and misplaced euphoria. Listening and reading what those on “the left” have said and written about a Trump Administration, the uninformed observer visiting from Mars might think that America had already sunk into a fascist-like dictatorship in which concentration camps are being set up for minority undesirables, the news media is threatened with being transformed into a voice for a Nazi-like propaganda machine, and that religious non-believers will soon be forced to attend church and coerced into compulsory tithing.

In my opinion, many on the political left have drunk a Kool-Aid of their own concoction, and now believe their own hysterical campaign propaganda about the death of freedom in America being just around the corner. Others on the political left find this apocalyptic imagery highly useful for manipulating people to march, demonstrate, and riot as a mechanism for solidifying their hold on their political base. Maintaining the frenzy also serves the purposes of those in the opposition already looking to the next congressional and presidential elections two and four years from now.

It is important to understand that many of the fears expressed by members of the Democratic Party or the political left in general about presidential usurpations of power – real or imagined – by Donald Trump all ring hollow. After all, they all delighted in the use of the same presidential prerogatives by Barack Obama through executive and related powers to get around a Republican controlled Congress during six of his eight years in the White House.

It was Obama who said that he had “a phone and a pen,” and with these in hand, he would do whatever he could get away with, whether Congress or a majority of the American people were supportive or not of his vision of a “hope and change” America. Suddenly, when that powerful presidential pen is in Trump’s hand, the left is “shocked, shocked” that the chief executive of the United States government may not adhere to the tradition of limited and divided powers in the American political system.

Their only problem with that presidential pen of executive power is that it is being held by someone they dislike, rather than someone who they believed to be the voice and vindicator of the cause of “social justice” and a “progressive” vision for a remade America.

Right-Wing Fantasies about Donald Trump

On the political right, many of those who opposed Trump during the Republican primaries, viewing him as an embarrassing political fraud and an uncouth reality show conman, have now changed their tune.

Although Republicans were once certain that Trump’s victory in the primaries meant inescapable defeat and four years of a Hillary Clinton presidency, they have gradually been closing ranks behind Trump. Many, however, clearly wish that the President would tone down his rhetoric, stop his stream-of-consciousness tweeting, and start acting more “presidential.”

But in spite of all his embarrassing personality hijinks and his thin-skinned rhetorical street brawling, he is, after all, not Hillary Clinton. And if he follows through on his promises, many policies long desired by the Republican and conservative movement, especially in the arena of domestic economic policy, could come to fruition.

He has said personal and corporate taxes are to be significantly reduced, including the double taxation of profits earned by American companies from overseas operations. He has said that federal regulations on business will be radically cut to free companies to plan and invest capital.

Trump has signed off on completing the Keystone oil pipeline connecting oil fields in Canada and the Dakotas with oil refineries and related facilities in the American south. He has challenged the global warming and climate change mania. Perhaps most importantly, he ran on and insists on the abolition and replacement of the Affordable Care Act – ObamaCare – to restore more personal choice over health insurance and medical care options.

If Trump successfully follows through with these policies and programs, many Republicans and conservatives will forgive Trump for most of his sins and shenanigans. This especially will be the case if it assures Republican control of federal and state legislatures in the next elections.

Donald Trump is unlikely to be the devilish destroyer of democratic society that “the left” is portraying him as threatening. But I would argue that neither is he the principled defender of freedom and free enterprise that many on “the right” hope he is, based on some of the economic policy decisions that he has made so far.

Donald Trump’s Worldview: Enemies Everywhere

What I think stood out most in his inaugural address on January 20, 2017 was the omission of references to “liberty” or “limited government.” The vast majority of the address focused on a call for a restored “national greatness.”

From this day forward, a new vision will govern our land. From this moment on, it’s going to be America First. Every decision on trade, on taxes, on immigration, on foreign affairs, will be made to benefit American workers and American families. We must protect our borders from the ravages of other countries making our products, stealing our companies, and destroying our jobs. Protection will lead to great prosperity and strength . . .

America will start winning again, winning like never before. We will bring back our jobs. We will bring back our borders. We will bring back our wealth. And we will bring back our dreams. We will build new roads, and highways, and bridges, and airports, and tunnels, and railways all across our wonderful nation . . .

We will follow two simple rules: Buy American and hire American. We will seek friendship and goodwill with the nations of the world – but we do so with the understanding that it is the right of all nations to put their own interests first.

President Trump repeated the same message in his remarks just the other day, on February 17, 2017, at an unveiling of the new Boeing 787 Dreamliner aircraft in Charleston, South Carolina:

As your President, I am going to do everything I can to unleash the power of the American spirit and to put our great people back to work. This is our mantra: Buy American and Hire American.

We want products made in America, made by American hands. You probably saw the Keystone pipeline I approved recently, and the Dakota. And I’m getting ready to sign the bill. I said, where is the pipe made? And they told me not here. I said, that’s good – add a little sentence that you have to buy American steel. And you know what? That’s the way it is. It’s the way it’s going to be . . . We are going to fight for every last American job . . .

I campaigned on the promise that I will do everything in my power to bring those jobs back into America. We wanted to make much easier – it has to be much easier to manufacture in our country and much harder to leave. I don’t want companies leaving our country, making their product, selling it back, no tax, no nothing, firing everybody in our country.

We’re not letting that happen anymore, folks. Believe me. There will be a very substantial penalty to be paid when they fire their people and move to another country, make the product, and think that they’re going to sell it back over what will soon be a very, very strong border. Going to be a lot different. It’s going to be a lot different . . .

To achieve that goal, we’re going to massively reduce job-crushing regulations – already started; you’ve seen that – that send our jobs to those other countries. We are going to lower taxes on American business so it’s cheaper and easier to produce products and beautiful things like airplanes right here in America . . .

You’ve heard me say it before, and I will say it again: From now on, it’s going to be America first.

In his view, the United States has been taken advantage of in its political and economic dealings with the rest of the world. The world has stolen American jobs, destroyed America’s manufacturing base, left the American middle class with a weakened and stagnant standard of living, and wreaked havoc with the American dream and near birthright to opportunity and rising prosperity.

To Donald Trump, every trade deal, every trade deficit, and every foreign business investment, is proof of the extent to which America is abused in its trading relationships.

This worldview is a revival of the seventeenth and eighteenth centuries mercantilist notion that human existence is an unending and irreconcilable conflict, not only or just with nature, but between nation-states. To the mercantilist, each nation-state should protect the economic well-being of its own subjects and citizens from the plundering perdition of other nation-states. In the mercantilist worldview, economics is a zero-sum game.

Classical Liberalism’s Liberation of Man from the State

The classical liberal intellectual, political, and economic revolutions of the late eighteenth and nineteenth centuries overthrew the idea of absolute monarchy, replacing it with either constitutionally constrained monarchies or republican forms of government. It also attempted to liberate the individual from the unrestrained power and control of the state. The ideal of individual liberty and each person’s right to his life, liberty and honestly acquired property momentously transformed the relationship between the individual and the state.

According to the classical liberals, government exists to preserve the right of the individual to live for his own peaceful self-interest, not to serve the purposes of kings, princes, or unlimited democratic majorities. The economists of the time, including Adam Smith and many others after him, argued that trade was not a zero-sum game and certainly not harmful to the nations engaged in trade relationships.

These liberals asserted that individuals know far better how to tend to their own interests than any government regulator could even dream of. Individuals only enter into exchanges with others when we believe that we will be made better off as a result of the transaction. No individual, in an act of free exchange, ever intentionally gives away something he values more highly for something he values less highly. Indeed, it is always the other way around.

Betterment from Trade vs. Political Presumption

If I go down to the corner store and purchase a copy of today’s newspaper for one dollar, it is because I consider the possible information it may supply me with to be of greater value than the price I am asked to pay for it. And, in turn, if the corner store owner sells me that copy of today’s newspaper it is because he values more highly the dollar he receives from me than giving up one of the copies that he has for sale. Each of us considers ourselves, respectively, better off.

Now it is true that after I’ve bought the newspaper and looked through it, I may decide, retrospectively, that it did not contain anything really new or interesting and therefore, in hindsight, I could have easily gone through the day without buying it and used that dollar to purchase something else, instead.

No one has perfect knowledge. We all act on what we know or believe at the time a transaction is entered into. And sometimes we conclude that a trade, after the fact, was not as advantageous as we hoped for or had wished. But it would require a large amount of arrogance on the part of anyone else to presume that they know more than we do about what is better for us in our everyday market exchanges. The knowledge on which the presumptuous political paternalist asserts a right to control and interfere is at least as imperfect and limited as that possessed by the rest of us.

Trump’s Central Planning Mindset

While many conservatives are hailing Donald Trump’s declared intention to reduce regulations on business and lower taxes on individuals and private enterprises alike – all good things in themselves, assuredly – we should understand the ideological perspective from which he is doing so.

At no time has President Trump said that he intends to follow through with these policies because he wants the American citizenry to have more control and over their own lives. He never advocated the reduction of tax burdens so Americans could keep more of the income and wealth they have honestly earned as a desirable political goal in itself.

No, instead, President Trump has advocated these policies as an economic central planner who knows where American businesses should invest, who they should hire, and what products they should produce.

How is this any different from the “progressive” who wishes to use government regulation to restrict the use of fossil fuels, while using interventionist policies to promote “alternative energy?”

The goals and regulatory tools may differ, but the underlying premise remains the same: That the government knows better than the individual citizens, themselves, how to live their lives.

Adam Smith’s Enduring Wisdom

To be honest, it arouses the deepest frustration for an economist to have to repeat the words written by Adam Smith more than 240 years ago in his famous book, The Wealth of Nations:

“It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them of the shoemaker. The shoemaker does not attempt to make his own clothes, but employs a tailor. The farmer attempts to make neither the one nor the other, but employs those different artificers . . .

“What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better to buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage . . .

“It is certainly not employed to the greatest advantage when it is directed towards an object which it can buy cheaper than it can make it . . . The industry of a country, therefore, is thus turned away from a more, to a less advantageous employment, and the exchangeable value of its annual produce, instead of being increased, according to the intention of the lawgiver, must necessarily be diminished by every such regulation.”

President Trump and those in his administration who share his negative view of the importation of less expensively made goods would, no doubt, say that may be all well and good under the circumstances of a “level playing field,” but other nations do not play fair. Other governments subsidize their own exports and attempt to hamper in their own ways the importation of American goods into their own countries.

Importing Cheaper Goods is Always to the Good

Whether the less expensive imports offered to the United States are the result of market-based cost efficiencies in another country or the government subsidization of some of that other country’s exports, from the perspective of the American consumer there is an opportunity for an increase in real income. A desired commodity may be purchased for less than before, leaving a sum of money in the buyers’ pockets with which they may now afford to purchase what previously they could not.

What about jobs lost in the domestic market because of the foreign imports? Like in the face of all change, adjustments are required. In this case, re-employments will be required, but there is nothing, per se, that prevents alternative jobs from being found. After all, the imports must be paid for through exports – the foreign country does not give its goods away for free. And, in addition, the saved dollars from purchasing the less expensive foreign product will mean additional demand and spending on different goods consumers can now afford to buy, offering job opportunities in these employment directions, as well.

The False Goal of Just “Jobs”

This gets to another blind spot in President Trump’s stated agenda. He repeats, again and again, that his task is to create jobs for Americans. But “jobs” is not an end in itself. While some things are pleasurable to do in themselves, work is a means to an end. Whether it is planting crops in the field, or manufacturing products in the factory, or putting out the fishing nets in the ocean, or offering a service such as a haircut or an aerobics class, they are all the means to an end – producing goods that others want in society as the method of earning a living that enabling us to buy from those others what they have for sale in the division of labor that we, in turn, desire to consume.

We should desire for everyone to be doing their work at the lowest cost in terms of resources and manpower precisely so we can get the most goods and services we desire with the means available. If the producers in another country can do this better and less expensively than we can do it at home, we should take advantage of this to maximize our own material well being, rather than bemoan its offer.

Suppose that tomorrow, through some miracle, clothes started growing for free on tree branches and all the jobs in the textile sector of the economy were to disappear. Should we despair over this? Surely, we could have all the clothes we could want and could then devote all the freed labor to producing other things we also desire but could not previously have because so much of the labor force was tied up in making our shirts, pants and jackets.

Fearful of losing those “good American jobs” in the textile industry, would we consider it better to cut off the branches on all those clothes-producing trees so to maintain all those jobs making clothes? I think most of us would consider it ludicrous. President Trump, if we take him at his word, might want to impose an import tariff and build a high wall along the border to keep all those free clothes out of the United States if it turned out those clothes-producing trees were located in a foreign country.

Trade Retaliations Make Your Own Country Worse Off

But what about other countries that impose import tariffs against our goods to “protect” their own industries and employments? Should we not respond with retaliatory tariffs and related import restrictions to teach them a lesson? If we do we only injure ourselves, in so responding to the trade barriers erected by other countries.

A British economist, Henry Dunning MacLeod, gave a vivid reply to the argument for a retaliatory tariff back in 1896. He said:

“By the method of retaliatory duties, when the [other country] smites us on one cheek, we immediately hit ourselves an extremely hard slap on the other. [The other country by its import duties] does us an injury, and we, by retaliating, immediately do ourselves a great deal more. The true way to fight hostile tariffs is by free trade.”

Retaliating with counter tariffs merely makes the goods previously purchased from the foreign country more expensive for the consumers of your own country, lowering their standard of living through higher prices and a smaller variety of goods from which to choose. And by reducing the sales earned by the foreign producer in your country, he has less revenue from which to buy your country’s exports, with a negative effect on those sectors of your own economy.

If, now, that other country proceeds to impose counter-counter tariffs in response to your country’s retaliation, then both countries face a death spiral of diminished trade between the two nations, with reduced goods available to consumers in both countries, higher prices for more of the products the citizens in both countries want to buy, and a reduction in the international system of division of labor that diminishes the overall productivity of the global marketplace, the end result of which is less prosperity and material progress for everyone.

If President Trump actually follows through with his protectionist policy proposals based on his zero-sum conception of the trade between nations, the end result can be a negative-sum game in which all the nations of the world are made worse off.

False Prosperity Behind Trump’s Trade Walls

Oh, yes, American workers may now be making goods that previously were manufactured by foreign employees. American industries that had diminished in comparison to their size before intensified globalized trade may make a comeback behind President Trump’s tariff walls.

But behind this mirage of restored American “greatness,” American workers and consumers will be poorer than they have to be, making goods at higher costs and with less productive efficiency than a free and open participation in a free market-based global division of labor would have offered to all in the world, including those Americans whose economic welfare President Trump claims to be so concerned about.

Donald Trump Refuted by a South Carolinian – in 1830!

I earlier quoted from President Trump’s remarks during his recent visit to Charleston, South Carolina. Let me quote a South Carolina economist, Thomas Cooper (1759-1839), who published the following words in his 1830 Lectures on the Elements of Political Economy, in what became one of the most widely used economic textbooks at that time in the United States. Dr. Cooper was a president of South Carolina College and a Professor of Chemistry and Political Economy. He said:

“The whole use of foreign trade is to import commodities that are wanted, at less cost, than they are produced at home. This is the very basis and essential character of it. Hence, the principle of restrictions and prohibitory imposts [tariffs], forbidding an article into being introduced from abroad because it can be had cheaper from abroad – goes to the utter annihilation of all foreign commerce . . .

“The restrictive system tells us in fact, that we shall greatly profit by being confined as prisoners within our own houses, without intercourse out of doors; that is it our duty to let our domestic neighbor grow rich on our credulity, and persuade us to buy from him an inferior article, at a higher price . . .

For [this] principle being adopted, where is it to stop? To talk after this, of our being the most enlightened nation upon earth, is a satire upon ourselves more bitter than our own enemies have it in their power to utter. To be governed by such ignorance, is indeed a national disgrace.”

Donald Trump’s Dangerous Protectionist Paternalism

Donald Trump may be neither the devilish would-be dictator that many on the political left have portrayed nor the “telling-it-like-it-is” avenging angel that some on the political right have someone who will gloriously restore a lost American greatness.

What should be fairly clear is that behind President Trump’s mantra of “America First” is a dangerous paternalistic protectionism that sees tax cuts and reduced regulation of business at home not as ends in themselves to restore individual liberty and economic freedom to the American people; but, instead, as fiscal and interventionist policy tools to influence and manipulate the direction and form of economic activity in the United States.

Other nations are not seen as global partners and participants in a worldwide quest for a general improvement in the condition of humanity, including the betterment of the American people. The world is not seen an arena of international cooperation through peaceful market competition in which each nation and the people in them find the best ways to earn their livings through the mutual improvement of those with whom they trade.

Instead, President Trump views the world as a hostile place in which other nations are out to better themselves by making America and the American people poorer, weaker and worse off. That very attitude and belief, if acted upon in the implementation of American foreign economic policy, is likely to make it a self-fulfilling prophecy. Other nations may easily fall further into the same mindset of nationalist collectivism, bringing with it international economic tensions and possibly intensified trade conflicts, if not actual trade wars. It is a dangerous mindset visibly growing today in a number of European countries and in other places around the world.

Donald Trump’s policies may very well bring about more products bearing the label “Made in the USA.” But its real and perverse meaning will not be a restored American greatness, but the brand name of an economic policy perspective that carries with it the idea of protectionist paternalism that, at the end of the day, will improve neither the condition of the American people, nor the betterment of the rest of the world.

Based on an address delivered as the Second Annual Joan Thompson Memorial Lecture, sponsored by the Nassau Institute in the Bahamas, February 21, 2017

Richard M. Ebeling is BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina. He was president of the Foundation for Economic Education (FEE) from 2003 to 2008.